Initiation: Geo Energy Resources (GERL SP), 30 August 2021
Cash machine
GEO is set to have a record year ahead as coal prices remain resilient. ICI 4 prices (4,200 kcal) are at more than 10-year highs. While we expect coal prices to soften in 2H2021, dynamics favour coal miners given the buoyant demand from India and China.
GEO’s two key mines have a total estimated coal reserve of 84 million tonnes, based on a Joint Reserves Committee (JORC) Compliant report issued in December 2020.
Our DCF calculation (13.5% WACC and no terminal value) estimates a
fair value of S$0.42 based on a conservative 6-year mine life and 66mn tonnes production.
Upgrade to Outperform as we raise our fair value to S$0.42. We forecast GEO will generate US$247mn of free cash flows in 2021 and 2022, more than its current market cap. It currently trades at only 2.0x 2021F P/E and offers an above-industry 9% forward div yield.
Read More: https://www.kgieworld.sg/research/geo-energy/
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